Becker: Take a Hard Look At Your Business Model (Full Transcript, Video Part 1)

During NAFCU President/CEO Fred Becker’s 11-year tenure he has seen the best of times and the worst of times for credit unions. Credit Union Times Editor-in-Chief Sarah Snell Cooke sat down with him in NAFCU’s Arlington, Va. headquarters on the occasion of his anniversary to discuss key topics from the federal regulators to private insurance.

Sarah Snell Cooke: Good morning everyone, and we’re here in NAFCU’s Arlington headquarters today with NAFCU President/CEO Fred Becker on the anniversary of his arrival here 11 years ago.

Fred Becker: Seems like yesterday! Welcome to the NAFCU building.

SSC: Thank you. Over those 11 years, how has your job changed, and how have credit unions changed?

FB: I think the job’s changed dramatically. It seems like everybody’s running like a little mouse in a cage, trying to keep up. Obviously the economy’s been through tremendous changes over the past three years–we’re still not out of it. I like to say that credit unions are the foundation of the industry, but as the result of being the foundation of the industry, when the storm passes, there’s still leak getting into the foundation. And credit unions are still coming out of the crisis that we went through and it will be another year or two before we’ve fully come out of it, and the economy still begins to just recover marginally.

SSC: What have been some of NAFCU’s accomplishments under your tenure?

FB: I think that we’ve done a lot, if you think about it. We’ve developed a very good relationship with the regulator. I know [these are] contentious times with the regulator these days, but as I noted from somebody making a statement this morning–Bill Rissel at Fort Knox–there’s also contentious times in the banking industry. I think regardless of the regulator today, these are contentious times, regardless of where you are, if you have a federal regulator or a state regulator that times are contentious.

SSC: You mentioned “contentious” a couple times. Are there any regs in particular you’re working with the agency on? Any exam issues that have come up?

FB: Yeah, exam issues are a tremendous issue right now. Anthony Demangone, our vice president of regulatory compliance, when we saw last year that credit unions were having compliance issues, did a nice white paper to help credit unions through this system. The white paper was widely acclaimed by NCUA as well as by the credit unions who’ve used it, and we’ve made it free and available to the whole credit union industry, not just NAFCU’s members, because we’re all going through this together, and the losses that we go through affect each one of us.

SSC: Over your 11 years, is there anything you might have done differently?

FB: I don’t think there’s a lot I would have done differently. When I came here, Bob Senkler, who runs Minnesota Life, said to me “Just put your head down and go forward. And keep going.” And that was the best advice he could have given me. Or anybody could have given me. I think you just put your head down and go forward. Obviously, we’ve made a tremendous transition with the staff. We were seen, when I came, as just primarily focusing on regulatory issues, and we were seen as focusing primarily on conferences, and I think everyone now recognizes we have the most seasoned lobbying staff in the credit union industry. Brad Thaler, who’s been here the longest, our vice president of legislative affairs. Dan Berger does a marvelous job, as does Carrie Hunt and Anthony Demangone. And so we’ve really made a huge transition in being a leader in the industry, regardless of whether it’s a conference, a regulatory issue or a legislative issue.

SSC: The last few years have been difficult times for credit unions–it’s gotten them to see beyond their own four walls. What do you think are the top two to three issues for credit unions?

FB: I think the top issue is reinventing the business model. For the past year we have been saying that the legislative and regulatory and economic pressures are going to create a very different environment for all financial institutions going forward, and that credit unions have to step back and take a hard look at their business model and their strategic planning sessions and discuss it at each board meeting and figure out how they’re going to adapt to the future, because the future is going to be very different than it is today.

SSC: What about particular issues like supplemental capital and member business lending? Are those still on the radar for credit unions and in Congress?

FB: Yes, absolutely. Still on the radar for credit unions. Matter of fact, we expect this week Sen. Udall to introduce a bill with regard to member business lending. I would point out that that member business lending legislation that we expect Sen. Udall to introduce is fairly restrictive. One of the issues I think we have in the industry is some are very concerned that we’ll have as a result of credit unions getting into increased member business lending a future situation like we did with the corporates, where we’ll have to pay for it through the insurance fund. But if you take a hard look at that legislation, it’s very restrictive–very restrictive as to the experience level and who can do it. And I encourage the whole industry to get behind it. I think one of the problems we’re having today is some credit unions want supplemental capital, some credit unions want member business lending, but they’re not binding together to support each other on their various issues. Going forward, there’s going to have to be some generalized support to move these things forward.

SSC: Have you seen more dissention in the industry, more division?

FB: I wouldn’t say “division” or “dissention”; I would say more people questioning. And the questioning–don’t get me wrong–is good. I think one of the problems that led to the corporate situation is everybody just trusted the corporates as opposed to keeping a watch with what was going on, and that led to the crisis. We may have been able to prevent it if people paid more attention to what was going on with the corporates we’re investing in, etc. And so it’s a good thing that people are questioning. But when they question, I think that they have to take a hard look at it and come to a resolution–listen and have a discourse back and forth.

SSC: One of the organizations that has taken some of the heat for that corporate debacle has been the NCUA. Is the agency making the right moves to ensure that it has the expertise on staff, whether it be corporates or member business lending?

FB: I think that they’re hiring the new examiners–I don’t know the criteria for which they’re hiring the new examiners. Clearly the NCUA is partially responsible for what happened. I don’t buy the excuse that the regulator couldn’t do something because it’s not legislatively or regulatory written in stone. If they see things going south, they had the ability to step in. At the same time I do think that corporate stabilization–they had to do that. It did preserve the system, and they had no choice but to do that at that time. As to where we end up with the corporates, that remains to be seen. We’ll certainly know by this September. I think it’s NAFCU’s position since the beginning–and I’m glad that others now are adopting it–is this is up to the member owners of the corporates to determine, under the rules and regulations set forth by NCUA, not someone else to say “Corporates, this is the way it ought to look like in the future” in a dictatorial manner.

SSC: The NCUA has also been vilified for becoming a little strict with its exanimations, and, as you mentioned before, you’ve put out your white paper, but that’s also justified, I would think too, correct? The agency getting tougher?

FB: Well, I think the agency has to be consistent in being tougher. They have to ask the right questions, and it has to be handled in the right manner. One of the issues we continue to hear about is guidance–the examiners coming in and saying guidance is a regulation. We were very pleased recently to see Bob Fenner saying “No, guidance is not a regulation.” I think credit unions need to step back and say, “Where does it say I have to do that? Is it guidance or is it regulation?” And they have to work through it in a disciplined, gentlemanly manner, so to speak, with the agents. Anthony’s paper has some great thoughts and ideas that I encourage everyone to read.

SSC: The NCUA has come up with some framework and has the regulation in place for the corporates. What’s next for natural person credit unions? Do you see any future trouble on the horizon?

FB: There are a number of natural credit unions that continue to struggle in this environment. I think, again, we’re coming out of the storm. Hopefully there won’t be another significant economic downturn. Obviously what’s going on in the Middle East creates some concern as to a future economic downturn. Thus far, things seem to be holding fairly well for us. And we need to recognize that there are forces beyond us that we just have to adjust to, and we have to be prepared for what’s known as the black swan; that is, the event that you just can’t anticipate, but you nevertheless have to be prepared for.

SSC: And that goes into the NCUA’s recent regulation on director education–knowing what’s going on outside your own four walls. You all had some concerns about that. Can you talk about that?

FB: We had concerns about the director education in the sense that it was not articulated as to exactly what the board members had to do with regard to education. For lack of a better term, it was void for vagueness. I think the NCUA now, as a result of our stepping in–which we did very very quickly–is put forth some parameters, such that the examiners won’t be sitting there and looking at board members and quizzing them on the finances, etc. We are also offering certificates and training to the board members, both on financial literacy and for their supervisory committee. They can get that through our webcast or at our annual conference. And I sign those certificates and letters to each CEO personally, thanking them for doing it and hoping we’re helping them.

SSC: There are also some large troubled credit unions that are privately insured. Does that concern you?

FB: I’m concerned about any credit union and the reputation risk that any credit union gives. Hopefully we will come through this with the privately held insured credit unions like we’re coming through it with those that are federally insured, and we’ll have no difficulties. I would say at the same time that the qualifications to transfer to the NCUIF are fairly strict in statute and regulation, and as a result of that it may be that some of the privately held insured credit unions cannot get into the federal system. That will be very unfortunate to them and their members, but they made a choice to go a certain direction and we believe they have to live with that choice.

SSC: The NCUA has a proposal out to ask for voluntary assessments from nonfederally insured credit unions. What position has NAFCU taken on that?

FB: We’ve taken a position of being opposed to that, as well as opposed to [the proposal that] you can only join one corporate credit union. Speaking of the corporate credit unions and the volunteer training, I would note this: I think in this day and age, what goes through the business industry or the commercial industry or the for-profit eventually flows through the nonprofit. And I think that the board members of credit unions need to recognize that their duties and responsibilities are no different if they were on the board of GE, or Walmart, or AIG. And the fact that they’re volunteers, or not paid, or the fact that the regulator comes in and examines then, or the fact that the regulator even has someone on site does not absolve them of their responsibilities–their fiduciary responsibilities–and that’s the reason we’ve done training with regard to that as well.

SSC: There is also a trend toward consolidation of the credit union industry. Explain to me how that affects your trade association.

FB: It hasn’t affected us at all. We’ve come through this storm very, very well. Unlike the rest of the industry–and in this sense I’m speaking about the association industry–I think about three-quarters to maybe more associations ran in the red. They had to curtail programs. They had to cancel 401(k)s and employee benefits. We didn’t have to do any of that and we were in the black every year. The members continue to support us; I think they continue to recognize the value of NAFCU. We had a fine year last year again, probably one in the top half since I’ve been here. So it has not been a problem to us. At the same time we try to stay very focused on the problems that are concerning our members, and I think that’s what’s helped us. What we did with corporate stabilization, getting the legislation passed; what we’ve done with the regulator with regard to mergers; and the insurance fund and prospects for assessments for the insurance fund and corporate stabilization. I think everybody’s recognized that.

SSC: Anything else you’d like to add?

FB: I don’t think so. I really appreciate you coming over very early on a Monday morning. The weather’s getting better, and hopefully the economy’s getting better and credit unions too.